Keith Hudson's Musings

The self-correcting world economy

The Governor of the Bank of England (BoE), Mark Carney, has been telling us like clockwork for the past two years that he’ll be raising the bank rate in three/six/nine months’ time. Since yesterday the BoE has signalled that because of the parlous state of the world economy the rate will not be raised until at least 2017.

Well, it’s true enough about the world economy but where is the evidence that the BoE can resume any sort of guidance as to our economic destiny in 2017? Much the same applies to America’s central bank, the Fed. Janet Yellen, the Chairman, raised its rate from 0% to 0.25% six weeks ago on the basis that the American economy was picking up, Not only that but she intimated that the Fed would be raising the rate by 0.25% every few months until it reaches ‘normality’ again (2.5% to 3.0%?). It now looks as though her optimism was unfounded and it’s more likely she’ll probably bring the first instalment down to 0% again !

What Janet Yellen and Mark Carney and all other central bankers have yet to realise is that the world’s economic system, being a physical one driven by energy inputs at one end and modulated by human desires at the other, is subject to the same underlying law of all physical systems — the Law of Least Effort. The system being far too complicated for any sort of human understanding or successful supervision is, in fact, searching for its own steady-state like any other physical system. It is a self-correcting mechanism.